A case for using objective criteria to select investment proposals.

1. Justifying Technology Investments Using Governance Practices to Ensure Valid Decisions Copyright 2009 Esposito Consulting Group

2. Objective Effective Governance Practices will allow you to: Build more accurate and credible business cases Incorporate benefits, costs, flexibility and risk factors into your business cases Understand the most important financial concepts: return on investment (ROI), net present value (NPV), internal rate of return (IRR), and payback period Prioritize and select projects based on their financial projections Copyright 2009 Esposito Consulting Group

3. A poor track record has contributed to management skepticism of technology investments A recent KPMG study found more than half of surveyed companies admitted to failed IT projects costing each company an average of $12 million in the prior year 98% of companies with mature project/program justification processes reported 0% failure rate A recent Morgan Stanley study estimated that US companies spent $130 billion on failed IT projects in the prior two years2 Copyright 2009 Esposito Consulting Group

4. IT budgets and successful project delivery Maintenance & operations 75% Successful projects New projects 1/3 25% Potential failures 2/3 Copyright 2009 Esposito Consulting Group

5. IT business case justifications A justification process provides transparency into the value of technology investments A consistent, repeatable justification process will: Clarify how the organization will use its resources to accomplish a particular goal Identify not only the costs but also the benefits and risks associated with the investment Provide a consistent method for prioritizing and selecting projects Ensure tracking of metrics to measure costs, benefits realization, and customer satisfaction Copyright 2009 Esposito Consulting Group

6. Business cases are a proven way to justify technology investments The business case approach: Aligns technology investments with business goals and objectives Provides a consistent ROI methodology across all projects over time Establishes a uniform, meaningful dialog between IT and the business, in terms the business understands Defines metrics that business stakeholders have agreed to, helping to ensure benefit realization and accountability Identifies risks and risk mitigation strategies Ensures that strategic flexibility options are considered and valued Copyright 2009 Esposito Consulting Group

7. VAL IT is a proven, consistent, & effective methodology Provides the techniques and tools to quantify, justify, and value investments Aligns project goals with business goals and assigns accountability Supports decisions with a business case Takes into account risk and flexibility options Facilitates “what if” scenarios Assigns clear accountability Allows one to view all decisions as a portfolio of investments Copyright 2009 Esposito Consulting Group

9. Technology risk

10. Vendor risk

11. Education risk

12. Cultural/behavioral risk

13. Training risk

14. Organizational risk

15. External/environmental riskFlexibility Risk Benefits Cost Copyright 2009 Esposito Consulting Group

16. Understanding risk broadens range of possible outcomes Risk impacts estimates of costs, benefits, & flexibility Risk assessments help capture the amount of: Uncertainty that the technology may not work as expected Uncertainty that internal/external conditions may change, jeopardizing potential investment benefits Uncertainty that the vendor will miss or fail to meet its contractual obligations In business cases, there’s a natural human tendency to: Overestimate benefits and/or Underestimate costs and/or Ignoring risks – resulting in An ROI that is too optimistic Copyright 2009 Esposito Consulting Group

17. Adjusting for risk If a risk-adjusted ROI still demonstrates a compelling business case, it raises confidence that the investment is likely to succeed, since the risks that threaten the project have been taken into consideration and quantified. Copyright 2009 Esposito Consulting Group

18. Consider flexibility options Flexibility = investing in additional agility or capacity now, which can — with some future additional investment — be turned into future business benefits It is the value of the option or ability to take a second action in the future The value of the option always comes at an incremental future cost (if no future investment is required, it should be treated as a normal benefit in the business case) Black-Scholes model is what VAL IT uses to value flexibility options Copyright 2009 Esposito Consulting Group

19. Typical investments in flexibility options Upgrades Network bandwidth Training Infrastructure Architectures …any change that will require a second investment before additional value can be achieved Copyright 2009 Esposito Consulting Group

20. Flexible vs. non-flexible options Get B Do A Tactical Solution + the Option for C OPTIONS + the Option for D Get B Do A + the Option for E Strategic Solution Copyright 2009 Esposito Consulting Group

21. Metrics Primary stakeholders should be held accountable for benefits realization and optimization Each metric must have an owner, an individualwho is held accountable for that commitment Typically IT is accountable for cost savings in IT department while business is accountable for revenue increase, cost savings/productivity gains in business unit Copyright 2009 Esposito Consulting Group

22. Strategic Planning Paradigm Organizational Unit Strategic Plan(s) Create IT Strategic Plan & Project Portfolio Maintain IT Strategic Plan Manage IT Portfolio Business Goals Expected Return Business Metrics Results of Metric Measurements Plan Project Select Approach Deploy Metrics Measure Benefits Optimize Results Initiate Implement Make Operational Copyright 2009 Esposito Consulting Group

23. Contact Us Esposito Consulting Group 303 Third Street, Suite 206 Cambridge, MA 02142 p: 619.301.9708 | f: 617.812.0477 e: MicheleEspositoECG@gmail.com Turning challenges into opportunities Copyright 2009 Esposito Consulting Group